Crude oil prices tumble

US report of hike in supplies cuts $3.64 per barrel

By Associated Press | December 2, 2004

Oil prices plunged more than $3 a barrel yesterday -- the largest single-day decline in more than three years -- after the US government reported large increases in the nation's fuel supply, easing fears of a supply crunch as winter approaches.

But the supply data was merely the catalyst for what one broker referred to as "the avalanche effect," in which prices fell below key technical levels and triggered more selling.

The news launched a big rally on Wall Street. The Dow rose 162.20, or 1.56 percent, to 10,590.22. It was the Dow's best close since March 5. Broader indicators also made major gains. The Standard & Poor's 500 index was up 17.55, or 1.5 percent, at 1,191.37, its best close since Aug. 7, 2001. The Nasdaq Composite index gained 41.42, or 1.98 percent, to 2,138.23 for its best close since Jan. 26.

Light, sweet crude for January delivery fell $3.64 to $45.49 per barrel on the New York Mercantile Exchange -- the lowest settlement price since Sept. 16. Prices climbed above $55 a barrel in October.

"There are some people out there with red faces who locked in some incredibly high prices," said James Cordier, president of Liberty Trading Group in St. Petersburg, Fla.

The last time oil prices fell so fast in one day was after the Sept. 11, 2001 attacks as traders anticipated the coming economic shock. On Sept. 24, 2001, Nymex crude futures declined by $3.96 to close at $22.01 per barrel.

After months of fears about global supply constraints at a time of robust demand, traders' concerns had recently crystallized around heating oil supplies and weather forecasts in the United States.

Those concerns were tempered yesterday after the Energy Department said that the nation's supply of distillate fuel, which includes heating oil, grew by 2.3 million barrels last week to 117.9 million barrels.